Getting to grips with trading

The Governance Academy suggests a way for trustees to make sure they are doing it right in respect of trading and tax

The Charity Commission has just updated its guidance on Trustees, trading and tax.
The revised guidance is
  • clear
  • contains practical advice on investing in trading subsidiaries
  • is up to date on the law
  • reflects the Commission's wealth of experience
The guidance is arranged by a series of questions and the answers:
  • What is trading?
  • What kind of trading may charities carry on?
  • Is the sale or hiring out of donated goods "trading"?
  • Do charities have to pay tax on trading profits?
  • Do charities have to charge VAT on sales?
  • What is "primary purpose trading"?
  • What is "ancillary trading"?
  • What is "non-primary purpose trading", and when may charities engage in it?
  • What if trading comprises both "primary purpose" and "non-primary purpose" elements?
  • What if donated goods are sold together with other goods?
  • Does running a lottery count as "trading"?
  • What is the small-scale exemption?
  • What tax privileges apply to charity fundraising events?
  • What happens if a charity loses money from non-primary purpose trading?
  • What is a "trading subsidiary", and when must a trading subsidiary be used?
  • What are the benefits of using a trading subsidiary?
  • Do trading subsidiaries pay tax like other companies?
  • How can a trading subsidiary pay funds to its parent charity?
  • Can trustee expect their charity's wholly -owned trading subsidiary to always Gift aid all the profits shown in the profit and loss account to its parent charity?
  • How should trading subsidiaries be funded?
  • Can a trading subsidiary fund itself by the retention of profits?
  • What are the legal obligations of trustees investing charity funds in a trading subsidiary?
  • Can a charity seek outside investment in a trading subsidiary?
  • What considerations apply to a charity's investment of share capital in a trading subsidiary?
  • What consideration s apply to a charity's investment of loan capital in a trading subsidiary?
  • What other tax implications need to be considered when investing in a trading subsidiary?
  • Does a trading subsidiary enjoy the VAT and corporation tax privileges accorded to its parent charity?
  • Do trading subsidiaries qualify for rate-relief?
  • Can charity trustees and employees also work for a trading subsidiary?
  • What would trustees do if the trading subsidiary is in financial difficulty?
  • What duties do charity trustees have in regard ti trading subsidiaries?
  • Can a trading subsidiary be owned by more than one charity?
  • Can a charity guarantee the liabilities of a trading subsidiary?
  • Can a parent charity and its trading subsidiary consolidate their bank accounts?
  • Can a trading subsidiary use its parent charity's land and buildings?
  • Can a charity invest indirectly in a trading subsidiary?
  • How may trading subsidiaries be named?

Now, if you are not an accountant and not a charity law solicitor and you know all the answers to these questions in addition to the legal requirements then the Governance Academy respectfully suggests that you may need to "get a life"!

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